Nissan (7201) FY17 Guidance Question – US Performance Key to Outlook
Key Points
• Despite a forex tailwind, Nissan did not increase its guidance after the FY17 Q2 earnings release. We think this is due to a weaker than previously expected US performance. While Nissan’s forecast was lowered on one-off vehicle inspection failure costs, the US sales situation seems to be a more fundamental and longer-lasting issue.
• Nissan tried to reassure investors that improvement in the US is on the horizon, on the back of higher TIV, Nissan’s rising light truck sales ratio, and lower incentives in the new model year. In our view, higher replacement demand following the hurricanes in Q2 could indeed improve Nissan’s operations in the US in Q3, but this will likely be followed by a further deterioration in Q4.
• NA operations should remain under pressure in Q4 due to: a high base of comparison from FY16 Q4; no new model introduction apart from the Leaf; deteriorating financial services following another (expected) interest rate hike; and the deterioration of sales in Mexico.
• In FY18, we expect the US sales environment to remain challenging, with higher interest rates lowering auto demand in general, a slowdown in sales of light trucks after an expected eight consecutive years of increases, a deterioration of the model mix within Nissan’s light trucks (more sales of lower margin new Kicks and Rogue Sport), plus a challenging environment for the new Altima.
• We think that market expectations remain too high for Nissan’s FY17 OP (consensus of ¥693bil vs. Nissan ¥645bil vs. PSA ¥650bil), leaving room for disappointment.
• Although the vehicle inspection failure is seen as a one-off hurting FY17 results, there is a risk that Nissan’s aggressive cost-cutting culture could lead to further issues.
• While Nissan is attractive as a play on dividends, we note that Toyota (7203) and Honda (7267) are increasingly shareholder friendly; and in our view Honda is better positioned to face the US downturn than Nissan, while Toyota has superior long-term prospects.
• Based on our estimates, Nissan is currently trading on an EV/OP of 16.9x (FY17e) and 15.4x (FY18e), and so is fairly valued.
Nissan Motor, along with its subsidiaries and associated companies, is engaged in the manufacture and sale of vehicles, marine products and related parts; and the provision of finance services throughout world. Co.'s principal businesses are automobile and sales financing. Automobile segment manufactures electric vehicles, sedans, sport coupes, compact cars, mini vans, SUVs, pick-up trucks, and station wagons. Co.'s principal brand names include "Leaf," "Infiniti," "Murano," "Altima," "Maxima," "Sentra," "Quest," "Cedric," "Days Roox," "e-NV200," "Note e-Power," "Caravan," "Wingroad," "GT-R," "Farilady Z, among others. Sales Financing segment provides sales financing services..
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
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